Daily time frame, although it may be a bit complex for beginners. This system was designed for currency pairs and only need a couple of indicators easy to apply, but I assure you, this is not for novices. It is recommended that the trader fully understand the concept of divergences before applying this strategy.

 

How this trading strategy work?

 

This strategy uses three time frames; D1, H1 and M15S. Also it uses 2 indicators as well as Japanese candelas. The first indicator we need is the stochastic oscillator configuration (5, 3, 3) and levels 80, 50 and 20. For users of MT4, under display, see the indicator should select only daily time frames and 1 hour. Then, in the time frame of 15 minutes must place three moving averages smoothed with the following periods: 21, 14 and 7. These moving averages are used to identify exact entries in the 15 minute chart. When the graphics are set we will start looking for differences, starting with the daily chart.

D1 chart of the currency pair NZD / USD

 

It may be noted the marked area on the stochastic oscillator. The minimum is lower than the previous position overbooking under the dotted line. Now if we look at the graph we realize that Japanese candelas move up, without breaking the dotted red line on the price chart. Thus a divergence is confirmed.

First we started looking for a price-indicator divergence on the daily chart (D1). In this scenario we look for a buy signal. Make sure that the minimum daily candelas not break the line of horizontal support while simultaneously stochastic oscillator must break previous previous minimum. This is a bullish divergence and once we detect switch to H1 time frame and ensure that the stochastic oscillator is below the level 20 in this graph. If the signal H1 is confirmed chart may proceed M15 graph and check if at least one candela closed above the three moving averages. This would be the signal for the purchase of a call option.

 

Trading signals on 15-minute chart

The yellow box indicates that the price has closed above the moving averages.

For a bearish divergence and a binary Put option, you have to find an area where the price is in a downtrend but with an upward correction, making the stochastic oscillator is in overbought condition. Here the candles can break above the resistance line or stochastic oscillator can break above the previous overbought position. In either case this means that divergence is occurring and therefore must change the graph H1 and find a position above the overbought level 80. If this condition is met, we changed the graphic M15 and wait for the price close below the three moving averages prior to purchasing a put option.

 

To make things easier to look for signs of divergence, you can draw a horizontal line in candelas graphics, as well as the stochastic oscillator. It can help you see divergences and price breaks. Just to clarify further what we're looking for, the author says that either seek a break in the price of the horizontal line drawn in the graph candelas without a break of the horizontal line on the stochastic oscillator occurs or a break the horizontal line in the stochastic oscillator without a similar breakdown occurs in the price chart.

 

The expiration of binary options is not specifically stated in this system as it was originally designed for the Forex market, but it is recommended at least 2 hours since we are relying on the H1 time frame for tickets. You can also test this system in frames slightly lower for more frequent time signals, replacing the daily chart with an H4 chart for example.

Call Options: Draw a line support and confirm a bullish divergence on the daily chart by locating a level lower oversold stochastic or a break of the support. Then look for an oversold level on the H1 chart to the stochastic oscillator, below the level 20, and then switched to graphic M15 and open an upward position (binary option Call) when a bullish candle close above the three moving averages .

Put Options Trace a resistance line and confirm a bearish divergence on the daily chart by locating the highest level overbought stochastic or a break of resistance. Then find a level of overbought in the H1 chart to the stochastic oscillator above level 80, and then switched to graphic M15 and open a short position (binary option Put) when a bearish candle close below the three moving averages .

Advantages of this strategy

 

This strategy can produce good results if the trader has enough experience to understand the rules and interpret graphs. By replacing the daily chart with a graph H4 will increase the speed of the signal, but still remains very precise strategy.

 

Disadvantages of this strategy

 

The main drawback is that it is a rather complicated strategy. It is only suitable for advanced traders who understand how to draw support and resistance lines, and how to identify points of divergence in the charts. Signals occur infrequently in the daily charts and selecting maturity periods is complicated.

 

Conclusions

This divergence strategy maximizes the stochastic oscillator, in addition to relying on the greater accuracy of longer time frames. Find exact entries is not a problem because the rules are relatively clear and moving averages show the points where it is most suitable for to enter. It can work well for binary options traders, but only if you have some experience as it is not for novices.

 

It is advisable to try this strategy with a demo account to see if you can find the points of divergence and fully understand the entry points before trading with real money.